Sept. 30 (Bloomberg) -- Netflix Inc., seeking growth in
Latin America after a price increase angered its U.S. DVD and
online customers, is confronting entrenched competitors and
cultural hurdles in its drive south of the border.

The company, based in Los Gatos, California, began selling
subscriptions in Latin America on Sept. 5 and now offers movie
streaming in 43 countries, including the Caribbean. The price is
99 pesos ($7.24) a month in Mexico and $7.99 elsewhere.

Lower incomes, less broadband availability and competitors
such as Telefonica SA’s TerraTV and Carlos Slim’s Net Servicos
de Comunicacao SA will complicate the effort, Chief Executive
Officer Reed Hastings said in July. Compared with the U.S.,
fewer Latin Americans have credit cards, the main Netflix
payment tool, and fewer have Internet-ready game consoles.

“It will be slower because of payment methods and because
of video-game consoles,” Hastings said.

The number of Internet users in Latin America is projected
to more than double to 107.3 million in 2020 from 46.2 million
at the end of 2011, according to SNL Kagan, a media consultant.
The market for TV and video subscriptions will grow to $23
billion by 2015, according to PricewaterhouseCoopers LLC.

Netflix, which had almost 26 million users as of June 30,
will double its foreign subscribers to 3.5 million in 2012,
according to Michael Olson, an analyst at Piper Jaffray Cos. in
Minneapolis who recommends the stock. That includes Canada,
where 1 million people joined Netflix in its first year there.

Market Share

Competition and cultural barriers will keep Netflix at less
than the 10 percent market share it needs to break even in Latin
America, estimates John Blackledge, a Credit Suisse analyst in
New York, who also recommends the shares.

Tony Wible, an analyst with Janney Montgomery Scott LLC and
a long-time Netflix skeptic, predicts the company will have to
drop its Latin America prices because consumers have lower
incomes and pay less for cable TV than U.S. viewers.

“There is just not the incentive in Latin America for
consumers to drop their cable service or to pay more to add
Netflix,” said Wible. “They’re not as well known in that
region than they were in Canada and there are regional
monopolies in some of the countries.”

Netflix gained 8 cents to $113.27 at 4 p.m. New York time
in Nasdaq Stock Market trading. It finished at the lowest close
since August 2010 yesterday, following reports that Amazon.com
Inc. and Microsoft Corp. plan products that may siphon users.
The shares have declined 63 percent from an all-time intraday
high of $304.79 on July 13.

Latin American Goals

To support its efforts, Netflix has agreements with Sony
Corp., Walt Disney Co. and other Hollywood studios for access to
movies and TV shows. The service also has signed on broadcasters
such as Grupo Televisa SA and Comcast Corp.’s Telemundo for
telenovelas and other popular Latin American TV programs and
films.

Netflix intends to duplicate its Canadian experience, where
the service has signed up 10 percent of the broadband
households, a feat that took six years in the U.S., Ted
Sarandos, chief content officer, said at a Sept. 14 conference.

Competitors say they are ready.

“We don’t see the arrival of Netflix as a concern,” said
Fernando Madeira, CEO of Madrid-based Telefonica’s Terra.
“We’ve had competitors before -- America Online, Yahoo.”

TerraTV offers free, advertising-supported video online to
12 million Internet users in 17 countries, including Brazil, the
largest Latin American market, according to Madeira.

It started a subscription service in February that has
200,000 registered users who pay 14.90 reais ($8.10) a month.
Madeira said the service plans to reach 1 million viewers
throughout Latin America by the end of next year.

Ties That Bind

TerraTV’s big advantage may be Telefonica’s relationships
throughout Latin America. Fixed line and wireless accounts in
the region generated almost 46 percent of the parent company’s
30.9 billion euros in 2011 first-half revenue.

“It is very difficult for people to come into this market
that are not known,” Madeira said. Consumers “don’t like
giving out their credit card numbers.”

Net Servicos, owned by Slim’s America Movil SAB and the
Brazilian media giant Globo Comunicacao e Participacoes SA, is
that country’s largest cable carrier. It recently reached an
agreement to provide its subscribers with access to the Muu
online service owned by Globo.

NetMovies Entertainment, a Brazilian, Netflix-like service
owned by hedge fund manager Tiger Global Management, announced
on Sept. 26 an agreement with Disney for “a large array” of
films. NetMovies, which offers DVDs by mail and streamed movies,
also has signed deals to be featured on Web-connected TVs
including those made by Samsung Electronics Co., Panasonic Corp.
and LG Electronics Inc., the company said in a statement.

Halo Effect

The online service doesn’t break out the numbers of its
subscribers. Tiger Global and NetMovies didn’t respond to
requests for comment.

“There’s a small brand halo effect in Canada that we don’t
have in Latin America,” David Wells, chief financial officer of
Netflix, said on the July conference call. “We’re building a
brand that is largely unknown down in Latin America so there’s a
little of an effect there in speed.”

Competition from illegal websites is also an issue.

In April, the U.S. Office of the Trade Representative put
11 Latin American countries on watch lists for intellectual
property theft, including the region’s three largest media
markets, Brazil, Mexico and Colombia.

The U.S. government says it has invited those on the lists
to negotiate “a mutually agreed upon action plan” by which the
countries would eliminate U.S. concerns over their enforcement
of intellectual copyrights.

“We think there is a real pent-up demand from honest
people who steal content because that’s the only way that they
can get it,” said Sarandos.